1. Reminder: equipment depreciation, often called industrial, is distinct from debt amortization, often called financial.
A borrower receives from the lender, at the entry into force of the contract that reciprocally binds both parties, the payment schedule of his debt, including interest and principal. This amortization plan is for financing and not for equipment.
2. Depreciation of equipment consists of spreading out the reconstitution of its acquisition value.
Let us note E the equipment considered. Let us also denote D the total duration of the spreading. D is composed of short periods P, all of which are at most equal to one year. At each end of P, a depreciation expense of E is recorded. The amount of this periodic allocation is debited from an ad hoc expense account. The counterpart is a credit to a fixed asset account, this account being the one where the acquisition value of the equipment already appears, in debit.69
3. This double-entry entry is necessary to preserve the value invested.
However, it is not enough. The provisions made must be placed in an interest-bearing bank passbook. In this case, cumulative depreciation allowances are recorded as a financial asset. If it does not go that far, current cash is supposed to provide for the preservation of the invested value. But this is contradictory: well managed, current cash is in small surplus.
4. It should be emphasised that the value invested by provisions is only effective if they constitute a cash investment.
This investment is liquidated to pay all or part of the provisioned replacement. In such corporate financial management, the operating cash flow is coupled with an investment cash flow. This doubling of cash flow is a step forward because the avoidance of misappropriation of industrial depreciation promotes the maintenance of employment.
5. This management system is not yet considered normal.
To set it up, you need a fairly positive working capital. The solidity of the enterprise's financial situation is thus reinforced by the renunciation of the misappropriation of industrial depreciation, in particular to make it a means of financial depreciation.
6. Enterprises have among their expenses financial costs and industrial depreciation expenses.
In fact, indebted mesonomic entities other than enterprises have financial depreciation expenses among their expenses.
7. In other words, a non-commercial association.
Its managers use a structural ratio. They set it at 60%, but for the explanation to follow, it doesn't matter if it's not more or less. The numerator of this ratio is the annual total expensesComptabilite_Charge. Debt amortization expenses are part of these expenses. No industrial depreciation expense is recorded as an expense. The denominator is the annual total income Comptabilite_Produit in the income statement. The association's managers are therefore aiming for an average annual result of 40%. If this percentage represents an amount greater than the capital expenditure of a year, the difference is placed. Such an association manages its results as prudently as the enterprises that best provide for their financial solidity manage their industrial depreciation.
8. The net position of any mesonomic entity depends on the market value of its fixed assets.
But only enterprises have a market value and only enterprises have results to distribute in exchange. This is why it is essential to include industrial depreciation in the expenses in their case. This is also why such a count makes no sense for non-commercial associations and individuals.
9. Many cost calculations require an estimated depreciation.
Among these calculations, there is of course that of the full cost price of an item sold by an enterprise. There are, however, many others. Some are common to all categories of entities. This is particularly the case when a choice of equipment is to be instructed.
10. For example, between three boilers and in this case, what will be the full cost of the thermal energy produced by each one?
The answer lies in estimating equipment depreciation. However, the presence of industrial depreciation among the expenses is only necessary in the general accounts of enterprises, just as the presence of debt depreciation among the expenses is only necessary in the general accounts of an entity other than the enterprise, when this other entity is indebted.